CRYPTOCURRENCIES – AN INTRODUCTION
A historic change is taking place. Self-managed, mathematically-based currency systems which exist only in digital cyberspace are evolving, amid confusion and uncertainty. Bitcoin was the pioneer and is leading a group of coins threatening to displace national currencies which have been in existence for centuries.
Crowdfunding platforms have allowed over 1000 different “cryptocurrencies” to be created. Most of these “coins” are following bitcoin’s profile—private and free-market, using the “blockchain.” These new forms of money and merchandise are brand new and there is substantial conjecture about their durability.
“Bitcoin” is cited below to represent this group of cryptocurrencies.
Principal reasons cited by SKEPTICS for staying away include:
Bitcoin is not tangible. True: bitcoin (BTC) exists as an electrical charge stored on a computer or other digital storage device. It has no tangible backing. However, that is also true of the currencies of every government in the world, with the viability of each currency being due to a government edict to accept its unbacked “fiat” currency for payment of goods and services sold within the country. And the acceptability of those fiat currencies is waning.
Government will eventually shut down bitcoin. One reason for government angst is that gains are generally not being reported for taxation. But even more important is the threat that bitcoin poses to globalist central banking systems around the world. Can’t have that!
The U.S. Senate and House recently introduced legislation aimed at getting a handle on cryptos. There are two thoughts on the outcome: (1) government is tolerating activity as part of a movement to get citizens into digital currencies and then force them into a digital dollar; or (2) the genie is out of the bottle and developments are proceeding so fast that government will never catch up—unless they use drastic measures such as declaring BTC illegal or shutting down the internet. It’s impossible to know how this is going to wind up—but we are strongly in favor of door 2.
Exchanges are insecure. There are a number of exchanges and online facilities where an individual can turn dollars into cryptos and back again. The exchanges are at this point mostly unregulated and susceptible to hacking—as was the case in the 2014 loss of 750,000 bitcoins at Mt. Gox. These exchanges have since adopted sophisticated security measures and a number of them seem quite secure. There is a lot more to be said about this subject, but the gist of it is that protection is available.
Bitcoin is in a bubble: not likely. Currently, less than 3% of the global population has had the opportunity to become aware of cryptocurrencies. This is ironically the same percentage of humanity that was cruising the internet before the advent of Netscape—the internet’s first browser.
What do CRYPTO ADVOCATES believe?
Bitcoin is money and passes the three tests for “acceptability:” it is a unit of account, a store of value and a medium of exchange. So it IS money, just like dollars, euros or yen. Its value is based on the degree of confidence people have in holding it, and in accepting it as payment for goods and services.
The supply of bitcoin is limited: in stark contrast to unlimited government printing of fiat currencies, only 21 million BTC coins can ever be “mined.” Since the number of millionaires in the world is greater than 21 million, it means that not every millionaire can own even one bitcoin! Limited supply, in addition to the fact that government does NOT control bitcoin, is its primary attraction.
Over 200,000 merchants and exchanges around the world already accept bitcoin in payment for goods and services, including many Japanese firms, but also name brand U.S. stores including Microsoft, Dell, Gap, JC Penney, Subway, Virgin Galactic and Overstock.com.
Major U.S. investment firms/funds jumping into cryptos include Fidelity, TD Ameritrade, Goldman Sachs, State Street and Facebook. Countries legalizing and/or adopting cryptocurrencies include Japan, China, Russia, Venezuela, South Korea, Iran and others.
Is Bitcoin a speculation? The answer is yes, for NO ONE KNOWS for certain where it is going. But it’s a very useful speculation, with a LOT more upside, in our opinion. How much upside is obviously unknown, but speculation by knowledgeable investors has been as high as $1 million per coin (currently, we’re near $10 thousand.) And its extreme volatility makes it a good candidate for market trading.
A recommendation. Bitcoin is NOT going away. Eventually, every cogent individual will consider putting money in cryptocurrencies. As this is written (early 2020), we’re still early in the game and cryptos appear to have begun another advance.
When you’re ready to start, you might want to consider our weekly reporting and the Handbook we have put together.